A rural, agriculture-based city that has 17,000 households is required to install treatment systems for the removal of arsenic and other harmful chemicals from its drinking water. The annual cost is projected to be $150 per household per year. Assume that one life will be saved every 3 years as a result of the removal systems. (a) What is the B/C ratio, if a human life is valued at $4.8 million? Use an interest rate of 8% per year and assume the life is saved at the end of each 3-year period. (b) What justifies the project?
What will be an ideal response?
(a) Determine AW of benefits and costs
B/C = 4,800,000(A/F,8%,3)/(150)(17,000)
= 4,800,000(0.30803)/2,550,000
= 0.58
(b) Not justified, since B/C < 1.0; but it is a required project based on noneconomic
criteria --- health of the citizenry
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